Every government collects taxes from its citizens in order to be able to fulfill its responsibility of providing proper roads, water, sanitation facilities, health care and education to the public. The government would need billions of dollars to carry out all its duties and it is due to the tax payers’ money that all this work is done. So, citizens are expected and mandated by law to pay the appropriate taxes. They have to pay taxes to their local state or county governments as well as to the federal government in certain instances.
Many people do not like the idea of paying taxes. of course. They hope that they could keep all their earnings to themselves. They feel that it is not fair for the government to grab a large percentage of their hard-earned money. They sometimes compare the tax percentages in other countries and feel that the amount of money they pay is too high when compared to the other nations.
But all said and done, taxes are extremely essential for the smooth running of a nation. Without taxes, the government would not be able to fulfill its obligations. It is necessary for us to get a proper perspective of why taxes are inevitable. Although we do not like the fact that we have to part with our earnings to support the government, we still have to see this as a benefit. In fact, we are paying the government to provide all the infrastructural facilities that we enjoy in our day to day life. If we can see taxes as a fee that we spend on ourselves for our own benefit, much like the money we pay at a restaurant to have a nice meal, we would find it easier to pay our taxes without feeling the pinch .
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In “The Federalist No. 21” Alexander Hamilton addresses the citizens of New York concerning the issue of taxation. Hamilton (1787) writes, “It is a single advantage of taxes on articles of consumption, that they contain in their own nature a security against excess. They prescribe their own limit; which cannot be exceeded without defeating the end proposed, that is, an extension of the revenue.” The advice given by Hamilton in 1787 is the backbone of the FairTax Act. The FairTax or bill H.R. 25 is not a flat tax or a VAT tax. It is a tax on consumption. The FairTax is a twenty-three percent sales tax levied on all new goods and services. The FairTax replaces all current federal taxes imposed on the people of the United States. This includes all personal and corporate income taxes. The twenty-three percent tax is not imposed on old or used items. It is applied only to new items. The FairTax is levied on all services, even on doctor’s visits. Educational institutions are the only exceptions to the rule. The FairTax is revenue neutral, meaning it provides the same amount of federal income as the current system. To prevent the FairTax from becoming an undue burden on the poor, a monthly prebate is paid to every family (Americans For Fair Taxation 1007). The prebate is equal to the amount of taxes a family pays on all purchases up to the poverty level. For instance, if a family was estimated to spend $26,400 a year on basic necessities, based on a 23% sales tax, their annual tax burden would be $6,072. This tax burden is paid to the family in monthly installments at the beginning of each month. With this prebate, all families living under the poverty level will pay no federal taxes (Boortz & Linder 2005). Arguably, the most app.
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. xes the “shadow economy” and brings the offshore accounts back to U.S. banks.
For the past eleven years, opponents from the left and right side of the political spectrum have lambasted the FairTax. Politicians who don’t want to relinquish the power given them by the current tax system are the proposal’s biggest opposition. They don’t want to give up the withholding system. They don’t want to give up the sixteenth amendment. They don’t want to lower taxes. They oppose the FairTax for the sake of their own greed and agendas. Despite all their baseless criticism, the FairTax is continuing to gain support on the grass roots and political levels. The statistical data and scientific analysis, compiled over the last eleven years, is overwhelming proof of the FairTax’s ability to bring transparency to the tax system, broaden the tax base and to fix the U.S. economy.
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Essay It's Time for the The FairTax - Tax Reform is becoming a major policy issue in the United States, but since it is mainstream introduction to the public, the FairTax Act has gotten much more attention. The FairTax is a unique tax reform policy as it replaces our current tax code with a 23% national sales tax. It has gained support (and criticism) from all areas of the political spectrum. In fact, Neal Boortz and former Congressman John Linder’s book The FairTax Book published in 2005, was a New York Times #1 Best Seller, and stayed in the top ten for seven weeks. [tags: Tax Reform]
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FLAT TAX & TAX REFORM ACT OF 1986. FLAT TAX & TAX REFORM ACT OF 1986.Term Paper ID:23155 Essay Subject: Compares specifics, effects, benefits of 1995 Congressional flat tax proposals & 1986 tax format. 6 Pages / 1350 Words 6 sources, 20 Citations, APA Format 24.00Paper Abstract: Compares specifics, effects, benefits of 1995 Congressional flat tax proposals & 1986 tax format.
Paper Introduction: This research compares, contrasts and critiques the U. S. Congress 1995 flat tax proposals with the 1986 tax format. The research also discusses the benefits and disadvantages of each for taxpayers. The Armey-Shelby flat tax, the most well known of the flat tax proposals, is based on the supply-side economics of former Housing and Urban Development Secretary Jack F.
Kemp, who co-authored the Reagan tax cuts in 1981. Most of the flat tax proposals are similar in nature.
All make major changes to the current tax code, which is based on the Tax Reform Act of 1986. The flat tax propositions are the first major proposed revisions of the Tax Code since that act. The Tax Reform Act of 1986 was the first significant revision of the tax code since World War II, when the tax code was converted into a broad-based tax (Snow, 1992, p.
139). It This means that a individual is able to earn a given amount of incomebefore beginning to pay income taxes. (1995). S.
A major benefit to the flat tax rate is the reduction and simplicityof the income tax return. The losers would be people with manydeductions, people who count on the tax-sheltered income to pay theirmortgage, and people with large real estate holdings which are expected todecrease in value approximately 2 percent when the tax advantages ofowning real property disappear (Montero, 1995, p. The TRA of 1986 changed the tax code toreflect a more accurate definition of household income.
If the flat tax proposals survive Congressional scrutiny, then thewinners at the individual level will be anyone who is currently payingincome taxes with income below the exemption rate for their family, anyonewithout many deductions, anyone with a significant income from savings, capital gains, and dividends. It was signed by then-President RonaldReagan on October 22, 1986.
14). 139). The proposed flat tax is also meant to stimulate the economy by fosteringmore productive effort from taxpayers, encouraging additional time at work, and by increasing capital investment (Fellows, 1995, p. The tax changes in 1986 were predicted to have widespread effects onthe economy. Fellows, J.
215). 21). The TRA shifted roughly 7 percentof the tax burden from households to business. The number of incomebrackets and tax rates would be one with only one type of exception.
The flat tax, although until the bill is passed by Congress it can change, will eliminatedeductions further. Business will be required to paytax on all net income: gross income minus cash wages; salaries andpensions paid; purchases of good, services, and materials; and all capitalequipment, structures, and land (Bartlett, 1995, p. (1992). The Hall-Rabushka plan has aneven lower suggested rate of 19 percent with an exemption of 25,5 for afamily of four before taxation (Bartlett, 1995, p.
The impact of the Tax ReformAct of 1986. The flat tax is progressive when a largeamount of income is allowed as a personal exemption (Fellows, 1995, p. The flat tax isalways progressive, unlike the TRA of 1986, which is progressive except inthe first decile. The taxrates were lowered for the second and third decile of the tax brackets atthe expense of the higher-income individuals (Wallace, Wasylenko, & Weiner,1991, p.
The tax rates being discussed for theflat rate range from 15 percent to a high of 25 percent possible if somedeductions (the mortgage interest deduction and state and local taxdeductions) are left in the tax code (McNamee, 1995, p. A person in the lower brackets pays a smallerpercentage of income in taxes than does an individual in the top decile. The TRA is progressive in all but the first decile, where tax rates did notdecline.
This in itself could increase tax revenues. The flat tax proposals are also similar to the TRA in that theyare also revenue-neutral and progressive. All of the tax forms in current use could bereplaced by a single form the size of the postcard (Montero, 1995, p. The TRA included taxation of full capital gains, elimination of the sales tax deduction, the two-earner deduction and thepersonal-loan deduction and limited the amount of passive losses and tax-deferred contributions to an IRA (Snow, 1992, p. 139).
Aside from the lowest decile, the changes in the tax codewhich occurred as the result of TRA resulted in a more progressive taxcode. The flat tax proposals both relyon a constant marginal tax rate. (1995). 215). References Bartlett, B.
(1995 December 4). A. Revenue-neutral means that the total expected collection of tax dollars is the sameif taxes are computed with or without the tax code changes. The projected increase in economic activity generated from increasedwork and increased capital formation and savings will be felt by allsegments of society. The Tax Reform Act of 1986 was the first significant revision of thetax code since World War II, when the tax code was converted into a broad-based tax (Snow, 1992, p.
L. Wallace, S.,Wasylenko, M.
and Weiner, D. CPAJournal, 65, 19-22. 74). The TRA reduced marginal tax rates from ashigh as 5 percent to 28 percent in the top bracket.
It also for the most part was a progressive tax. Reduction of rateswithout a corresponding increase in income subject to taxation would notgive a revenue-neutral position. The TRA wasdesigned to be revenue-neutral and progressive in structure. The flat tax appeals to the voters because they canunderstand and see how their taxes are computed.
The reason that both tax reform movements require a broadening of thedefinition of taxable income is that, with the reduction in tax rates, theamount taxed has to increase. A flat tax would continue the trend begun in 1986 to reduce thenumber of income brackets and marginal tax rates. The taxable business incomebase was increased by eliminating the 1 percent investment tax credit andslower depreciation schedules for equipment and business structures (Snow,1992, p. Don't cut taxes--flatten them.
Fortune, 131, 215. The concept of the flat tax is theoretically sound and is based onsupply-side economics. A simple tax system with a low marginal rateencourages individuals to stop practicing antisocial tax avoidancebehaviors and seeking legal methods to lower their tax bill (Fellows, 1995,p. Everyone, individuals and businesses, will lose deductions and increase taxable income but will gain a lower taxrate.
195). The supply-side economists believe it willhappen. The business tax rate fell from 46 percent to 34 percent.
The flat tax plans--Armey-Shelby or the Hall-Rabushka proposals--aresimilar. The flat tax proposals also change the method by which corporationsand businesses are taxed. Southern Economic Journal, 59, 139-141. The TRA did shift the tax burden slightly to businesses and away fromthe household.
(1995 April 17). McNamee, M. Businesses will also be taxed at a constant ratebut will also lose the ability to deduct many business expenses which arecurrently used to limit their tax burden. 2 ). The overall taxburden will shift but will not be changed if a revenue-neutral tax reformbill is passed.
National Tax Journal, 44, 181-198.----------------------- 1 The benefits tothe Republicans in government of being able to keep their promise ofcutting taxes and balancing the budget are important.
14).Flat tax advocates use the argument that the simplicity of the tax form andlower tax rates will encourage individuals who have been avoiding their taxresponsibility to accept it. The Armeyplan features a set rate of 17 percent and no deductions except for thepersonal exemptions (Montero, 1995, p.
On the list of probable deductions to be abolished arethose cherished by the homeowner--the mortgage interest and property taxdeductions, charitable contributions, and state and local taxes (Bartlett,1995, p. Do taxes matter? The flat tax proposals will continue to increase the progressivenessof the tax code, including the lowest income levels. 51). The prediction (from Harvard University) for nationalwealth if the Hall-Rabushka proposal or one similar is enacted is for animmediate increase of 2 trillion (Bartlett, 1995, p.
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27 March 2014. Author: Criticism
Fair Tax is the policy which is aimed to make the fair taxation for the people of the US in spite of their social status and type of business. Generally, Fair Tax is supposed to change the regular existing income tax for the new type of taxation which would be understandable for the average citizens who complain that the income tax is difficult for understanding.
The Fair Tax is supposed to make the single tax for all the people of the US which would be equal to 23% for the retail sales. Like every economic reform Fair Tax has its positive and negative sides.
The opponents of the Fair Tax claim that the new reform would destroy the US business, because the businessmen involved into the retail sales would have to give 23% of their benefit to the country’s national budget.
As a result it can cause the increase of prices and the reform would affect the poor class badly.
On the other hand Fair Tax has its supporters which prove that the reform would improve the country’s economics due to the fact that people would no longer give a certain part of their income to the country but keep the whole 100% sum of income in their family budget. As a result people accumulate more money and their purchasing power increases increasing the circulation of production and capital, which has the positive impact on economics.
Generally it is difficult to predict the real impact of Fair Tax on the economics of the US, so the student has the chance to research this question deeper and reveal the aspects of the problem and its core principles objectively. A well-analyzed Fair Tax term paper is the detailed investigation of the economic reform, its advantages and disadvantages, methods of application and possible impact of the life of the country and development of the US retail business. The student is expected to evaluate the pros and cons of the reform on the basis of the direct cases which describe the problem from all sides making a full image of the Fair Tax. In conclusion, the student is obliged to present his own point of view concerning the reform and predict the further situation with it.
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Linder argues that the current system of tax collection discriminates and infringes the principle of fairness. The special rates currently in operation supposedly catering for special circumstances breach the original constitution and are unreasonable. The fair tax scheme would ensure that all citizens pay their taxes based on the same rate but their responsibility would be controlled through spending ability (Boortz & Linder 2006). The amount of tax paid by an individual would greatly depend on his or her standard of living hence the amount of tax paid would be directly proportional to expenditure.
Fair Tax Position Mr. Boortz in his book, fair tax, seems to exaggerate his claims that the scheme would greatly motivate increase in economy growth rate. He explains that once implemented, the fair tax plan would encourage savings among individuals and this would transform into investments and hence creation of capital and speedy economic development. With a steady economic growth, there are greater chances of creation of employment and the problem of unemployment would be significantly reduced.
Mr. Boortz estimates that the scheme would increase the size of the current economy by a multiple of two and the capital investment would rise by approximately 76% with reduced bank interest rates to up to 30% less and all this developments will contribute to the growth of the economy to a growth rate of 10. 5% (Boortz & Linder 2006). The fair tax seems to incline its benefits to the poor and the middle class as it’s postulated to reduce their tax burden.
The fair tax would enable the poor and the middle class to acquire about 50% raise on take-home pay a very strong reason as to why the poor and the middle class ought to support the implementation of the proposed scheme. Though Boortz does not support economic class warfare, his support for the fair tax that would benefit the poor is quite strong and says even though there would be probate checks; it would only take care of necessities of life and some money would be left for the underprivileged to advance in their own future investments.
It’s been criticized that the rich would pay a greater portion of tax just as they do the current system. (Boortz et. al. 2008) On the international implication, once put in place, the fair tax plan would create an environment that would encourage foreigners to invest in America to sustain their market competitiveness (Gingrich et. al, 2008). This situation is described as an opportunity for the U. S to establish a tax collection system that would spread freedom globally. Limitations of Fair Tax The fair tax is portrayed as an independent and voluntary system of tax payment.
The citizens would have the freedom of choice as what they want, when they want, and how to spend their money allowing people to make tax payments when they want to. A serious problem may from the freedom accorded by fair tax, say if one decides that he/she does not want to pay any tax. The same repercussions as in the current systems will be applied (fine or Imprisonment) therefore fair tax is not voluntary after all (Hufbauer & Grieco 2005). Boortz insists that fair tax would be 23% and later comes to admit that it actually be 30%.
The fair tax guarantees to bring to an end the Internal Revenue Service (IRS). These could be seen as a very crucial achievement since the body is very inefficient however, in reality, tax collection would still be done by another body, logically it looks like a mere change of name. This does not get rid of the functions of the revenue collectors and critics assert that Income tax will be substituted by fair tax and IRS would be substituted by some kind of federal bureaucracy to watch over tax collection bearing in mind that fair tax is still National sales tax in reality (Gingrich et. al, 2008).Related posts: